Will Ether (ETH) melt after the Shanghai Fork? understand the next Ethereum update

The big fear is that, after the update, users who validate transactions on the network through staking withdraw and sell in the market, pulling the token price down (Image: Unsplash/Bastian Riccardi)

The net Ethereum (ETH) will undergo a major update in mid-March this year. It’s about the Shanghai Fork which, among other measures, seeks to implement a system of Ether staking withdrawals from the Beacon Chain.

The arrival of The Merge – merging the Beacon Chain, Proof of Stake consensus layer with the network execution layer – brought a concern to retail investors.

The reason is that, until then, those who wish to do staking of your tokens on the Beacon Chain need to leave your tokens locked. Despite the existence of liquid staking solutions such as the Lido protocol (LDO), a relevant amount is still locked in the network.

The staking movement is when a user helps in validating transactions on a network blockchain locking their tokens to verify the authenticity of that code. The user receives rewards in the form of that token that was locked in the network.

The big fear is that, after the update, users who validate transactions on the network through staking withdraw and sell on the market, pushing the price of the ether down.

Will Shanghai Fork Drop Ether (ETH) Price?

However, for Rony Szuster, a Bitcoin market analyst, this is not how it works. According to him, at the beginning a large eviction was expected, since the Beacon Chain was launched in December 2020, and those who staking at this time are in profit with their income.

The market moment also corroborates the narrative. Low liquidity and falling prices could be a strong incentive to sell these tokens, which would now be free.

“But talking to other analysts, and reading a Messari text, some points are made that indicate that the eviction will not be as big as we are thinking. Perhaps even irrelevant, ”he commented.

Among the reasons cited by Szuster is the withdrawal limit per day that will be imposed on validators for network security reasons. It will be a limit of 1,507 validators, or about 50,000 etherscan leave the Beacon Chain per day.

“It is argued that this selling pressure that the ether would have, it would be very similar to the selling pressure of miners before The Merge. Many will sell, but nothing that the network has not already passed before”, he says.

Another reason brought by Szuster, he raises the fact that about 60% of validators put their tokens in the first year before The Merge, September 2020 until September 2021.

“These guys, I include myself in that count, are people who believe a lot in the project, do fundamental analysis and who won’t want to take the ethers staking. I, for example, will want to leave my ethers there. I am not in need of liquidity and I want them to yield”, she points out.

The third reason is precisely related to liquid staking protocols, such as Lido and Rocketpool. For the analyst, traders do not need to wait for Shanghai Fork withdrawals to trade. “You can just use this net Ether derivative,” he says.

Is there a risk of self-fulfilling prophecy?

One scenario that may be likely is the “self-fulfilling prophecy”, where the fear of Ether dumping is so great by the market that the selling force gets stronger closer to the date.

For Ron Szuster, it’s a possibility. “And this is very common in the crypto market. People are very carried away by these narratives. But again, there is a cap on how much Ether can be withdrawn per day, so this would not cause a death spiral.”

Source: Moneytimes

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